The U.S. Department of Labor data on Unemployment Insurance weekly claims for the week ended August 8 makes for encouraging reading, revealing that while the number of new claims rose by 5,000 to 274,000, the number remained below the 300,000 figure for the 23rd week in succession.
The more reliable four-week moving average, which smooths out the weekly fluctuations, moved lower to a seasonally adjusted figure of 266,250 according to the Labor Bureau press release. This is the lowest level that the four-week moving average has touched since 15 April 2000.
Pantheon Macroeconomics chief economist, Ian Shepherdson, commenting on the jobless claim numbers said, “The very low level of claims … is consistent with companies’ complaints that they can't find qualified staff; they have to hold on to the people they already have, even if demand fluctuates.”
Analysts view the four-week moving average as a far more accurate number to use as a base for reading and forecasting labor trends. The current low level indicates that the number of unemployed is still on the decrease.
Chief U.S. economist at High Frequency, Jim O’Sullivan said, “Employment growth remains more than strong enough to keep the unemployment rate declining.”
The number of fundamental factors favoring an increase in interest rates by the Federal Reserve, which would be the first hike since 2006, seems to be growing. Together with the lower jobless numbers and the positive retail sales figures released on Thursday, these provide additional indicators to the possibilities of action by the Fed in September.
The one negative signal in the equation is the inflation rate which remains steadfastly below the Fed’s endorsed 2% level. Import prices dropped in July while the devaluation of the Chinese yuan earlier this week might very well lead to a further drop in import prices in August which would lower the inflation rate further.
Stanley Fischer, Federal Reserve vice chairman, said earlier in the month that economic growth was only one half of any rates increase decision while the inflation rate was the other half. He added that a continuing low inflation rate might delay a rates hike to a date beyond the September Fed meeting.
Investor sentiment appears to favor the view that rates will go up in September as Treasury yields (TMUBMUSD10Y, -0.04%) edged higher with stocks (SPX, -0.13%) moving slightly downwards.